Defined maturity (or target maturity) bond ETFs have been growing in popularity (read our previous article here), as they solve a shortcoming of traditional bond funds. While traditional bond funds offer broad diversification, professional management, and regular income; their downside is that they don’t have a fixed maturity date. Defined maturity date bond funds rectify this shortcoming, as they provide the benefits of a traditional bond fund plus a fixed maturity date. Furthermore, they also offer cash flow predictability and the potential final distribution of cash at the stated maturity year of the fund. When the stated maturity year comes due, the fund will receive all the cash from the redeemed bonds, distribute all the cash, and then shut down.

Introducing GuardBondTM Funds

Recognizing and appreciating the immense benefit defined maturity bond funds will have for investors, Guardian Capital has launched the GuardBondTM Fund Suite, a series of defined maturity bond ETFs and a laddered bond fund ETF. The GuardBondTM fund lineup is as follows:

• GuardBondsTM 2024 Investment Grade Bond Fund (Ticker: GBFA)
• GuardBondsTM 2025 Investment Grade Bond Fund (Ticker: GBFB)
• GuardBondsTM 2026 Investment Grade Bond Fund (Ticker: GBFC)
• GuardBondsTM 2027 Investment Grade Bond Fund (Ticker: GBFD)
• GuardBondsTM 1-3 Year Laddered Investment Grade Bond Fund (Ticker: GBLF)

For each defined maturity bond ETF (i.e., GBFA, GBFB, GBFC, and GBFD), the objective will be to provide income over a pre-determined period by investing in a portfolio consisting primarily of Canadian-dollar-denominated bonds. Conversely, the bond-ladder fund (i.e., GBLF) will be comprised of Canadian-dollar denominated investment grade bonds, segmented into three groupings with maturities from one to three years that will provide regular income; the fund’s underlying bond exposure will be achieved by investing primarily in an equally weighted portfolio of three ETFs (i.e., GBFA, GBFB, GBFC). Upon termination each year of the nearest term ETF, the cash proceeds received will be invested into a longer-dated Fund to maintain the one to three-year ladder. All funds have the FTSE Canada Short-Term Overall Bond Index as their stated benchmark index.

In speaking with Barry Gordon, Managing Director, Head of Retail Asset Management at Guardian Capital LP, he highlighted the value proposition of these recently launched bond solutions by stating, “We think our new suite of GuardBondsTM, which offer ETF series, combines the best of fund investing with investing in individual bonds. GuardBondsTM are a suite of actively managed, defined maturity bond portfolios that can be purchased individually, but also allow you to construct customized bond ladders focused on Canadian investment grade exposure.  Investors can choose to buy and sell these ETF units whenever they want, but there is the crucial option of being able to hold them to maturity as desired and receive the maturity value of the bonds of the portfolio. Not only does this type of strategy aim to help reduce the risk of owning bonds, it can also potentially provide some additional capital appreciation.” 

GuardBondTM Funds and the benefits of defined maturity bonds solutions

Time Horizon Matching:

A key advantage of defined maturity bond funds is the ability to precisely match the time horizon of the investment with the maturity date of the underlying bonds, thus allowing investors to align their fixed-income investments with specific financial goals or liabilities. This precise time horizon matching enhances the predictability of cash flows and provides a clear path for meeting future financial needs.

Reduced Interest Rate Risk:

Interest rate risk is an ever-present consideration when it comes to fixed income investing.  With defined maturity bond funds having bonds that share a common maturity, the portfolio’s overall sensitivity to changes in the interest rate environment declines over time. This targeted approach to managing interest rate risk enhances the predictability of returns and provides investors with a level of certainty that may be particularly valuable in uncertain market environments.

Liquidity:

Defined maturity bond funds combine the benefits of traditional bond investing with the liquidity and flexibility inherent in the ETF structure. Unlike individual bonds that may be less liquid in the secondary market, the ETF structure allows investors to easily trade and adjust their bond exposure in response to changing market conditions or evolving investment objectives.

Diversification:

Though defined maturity bond funds may focus on specific maturity years, the fund will hold a basket of bonds from different issuers and sectors, reducing concentration risk. This diversified approach enhances risk management, as the impact of a default or credit event on a single bond is mitigated by the broader portfolio. Therefore, investors benefit from a well-balanced mix of issuers and sectors, contributing to a more resilient fixed-income portfolio.

Active Management:

Defined maturity bond solutions reflect and benefit from the investment expertise of professional investment managers. GuardBondTM Funds will be overseen by Guardian Capital LP’s experienced Fixed Income team, seeking to maximize total

return potential and mitigate risk by being selective rather than tracking an index and seeking to maintain an average credit rating of A2. Bonds are sourced, traded, diversified and optimized by experienced professionals.

Tax Efficiency:

Each GuardBondsTM fund prioritizes holding bonds trading at a discount with the intention of holding them until maturity. When a discount bond matures at par value, the price appreciation is treated as a capital gain. The underlying bond holdings are highly liquid and the funds themselves offer daily and intra-day liquidity, unlike Guaranteed Investment Certificates (GICs). 

Conclusion

Guardian Capital’s GuardBondTM Suite provides investors with the combined benefits of a traditional bond and an ETF in a comprehensive package. For investors who know they will have an expected cash need in the future, defined maturity bond funds, such as GuardBondTM , afford them the ability to invest securely with that future date in mind, while maintaining optionality throughout the investment period. While the current elevated interest rate environment has led many individuals to ‘lock in’ with GICs, which traditionally cannot be redeemed before maturity, defined maturity bond ETFs are an elevated investment alternative that provides a fulsome fixed income investment experience and added flexibility.

For investors interested in learning more about Guardian Capital’s GuardBondTM Suite, their dedicated website provides an in-depth overview of their new product offering.

Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.